Competition Rules for Trade Associations to Become Stricter – Are You Aware of the Association Memberships in Your Company?
Trade associations have an important role in business life and the whole society. They do valuable work to influence, inter alia, legislation and authority regulations. Nevertheless, one has to remember that discussion topics are restricted when meeting with competitors. Competition law restricts considerably the matters that can be agreed or even discussed together.
Taking competition law into consideration will become increasingly important in the future. Competition law concerning trade associations and their member companies will become stricter, as the ECN+ Directive, which entered into force at the beginning of this year, increases responsibilities and toughens sanctions. Companies must be aware of the associations in which their employees are involved and ensure that they know how to act right. In addition, companies must ensure that competition rules are complied with in all activity of trade associations.
The ECN+ Directive Leads to Stricter Consequences
The European Union enhances the powers of national competition authorities with the ECN+ Directive, which entered into force at the beginning of this year. The Member States must implement the Directive on 4 February 2021 at the latest. The Directive will harmonise the powers of competition authorities in, among other things, the investigation of competition restrictions and the imposition of sanctions.
Finland has prepared for this change in the Government Programme: Competition and consumer authorities will be given more powers and resources, and the sanctions available to them will be increased. The Ministry of Economic Affairs and Employment of Finland will establish a committee to make amendments to the Competition Act.
Consequences for breaches will become more severe in two ways:
- Fines imposed on a trade association will be dictated by the turnover of the members. Currently, they are dictated by a trade association’s own turnover.
- If the association is not solvent, the fines will be borne by the members. In such a case, competition authorities may also require the payment directly by any of the companies whose representatives were members of the decision-making bodies of that association.
The euro amounts of the fines and the risks of the member companies may increase hugely. A simple example illustrates this.
The turnover of a trade association is EUR 2 million, and it consists mainly of membership fees and extraordinary income. The association has 20 members the accumulated turnover of which is EUR 500 million. The board members are representatives from four different companies one of which is an international listed company and three others are small and medium-sized enterprises.
The managing director of the trade association drafts a notice that states that salaries and energy costs will increase in the autumn and advises actors in the field to adjust their pricing in order to ensure their profitability. This constitutes a forbidden price recommendation and the Finnish Competition and Consumer Authority proposes to the Market Court that an appropriate penalty payment be imposed on the association. Pursuant to the current Competition Act, the penalty payment imposed on the association can be no higher than EUR 200,000. As a result of the reform, the penalty payment can be as much as EUR 50 million. The risk that the listed company ends up paying the fine is apparent.
The change gives rise to challenges particularly in associations where the members are variable in terms of its size and competition law expertise. In some cases, a company is considered to be involved in a competition infringement solely on the grounds that it has been informed of a decision restricting the competition of another organ of the association, and it has not publicly distanced itself from the decision. Companies’ requirement to act diligently will become stricter to an entirely new level, as each member must ensure that all the organs of the association comply with law, irrespective of whether the representatives of the company belongs to them or not.
Awareness of the Association Memberships Reduces Risks
- What are the trade associations your company belongs to?
- What are the benefits and risks of the membership?
- Who decides on the memberships?
- Where can the membership information be found and how is the information controlled?
- Does the association comply with competition rules?
- How has your company ensured this? How often and in which situations the situation is checked?
- Who is responsible for the matter in your company?
- What organs does the association have? How do you receive information on new organs and working groups?
- Which all organs have a representative from your company? Are you also involved in the decision-making bodies?
- How does the association ensure that also new organs and new representatives comply with law?
- How does the association ensure to the competition compliance of its members?
- Which employees can participate in the associations’ activity?
- Who decides? Who has the latest information?
- What kind of competition training does your company organise for the participants and their substitutes?
- What does your company do if it suspects that the association infringes competition rules?
- How does your company distance itself from risk activity? How does it rectify risk situations?
- Do the employees know what to do if they observe competition risks?
- Does your company have an action plan in case of risk situations?